DRM benefits several industries, including those related to traditional physical goods, such as ebooks. But wait, if I can pick up a book from the local bookstore, or go to an online book retailer, why would I buy an ebook? Well, as today's consumer, I'd probably get an ebook just to use cool breakthrough technology, and "not get left behind" so to speak. The question remains how much I'd pay for an ebook, and what can I expect to do with one...

Researchers from the NYU Stern School of Business recently found that ebooks make an especially interesting DRM study because digital rights for each ebook are determined by individual publishers rather than retailers, thus causing substantial diversity in ebook DRM schemes. Are Digital Rights Valuable? Theory and Evidence from eBook Pricing, CeDER Working Paper 06-01 (January 2006).

The NYU research is important because it suggests that the price and DRM protection of ebooks is determined by authors and publishers working under market dynamics: “In the absence of a threat of piracy, the price of a digital good is increasing in the level of each associated digital right, and a seller should always choose to grant the highest level of rights permitted by its DRM platform…”

Specifically, the researchers address the relationship between DRM, piracy and ebook pricing. Ebook publishers benefit by giving users the maximum level of digital rights; however, DRM and pricing are offset by the quality of the legal digital product compared to the related physical good, and the threat or quality of pirated reproductions.

Over 3000 ebook titles comprise the dataset. Noting that specific “digital rights are associated with a significant increase in the threat of piracy and a corresponding reduction in a seller’s pricing power”, the paper observes that “other digital rights result in a net increase in the value a seller can derive from its legal digital goods.” This recognizes that granting “users insufficient digital rights can result in business failure, while granting over-extensive digital rights can cannibalize established sales of physical goods.”